ACIT, CHENNAI v. M/s. Cholamandalam Investments and Finances Company Ltd., CHENNAI

ITA 1540/CHNY/2010 | 2003-2004
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 154021714 RSA 2010
Assessee PAN AAACC1226H
Bench Chennai
Appeal Number ITA 1540/CHNY/2010
Duration Of Justice 3 month(s) 21 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Cholamandalam Investments and Finances Company Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-01-2011
Date Of Final Hearing 02-12-2010
Next Hearing Date 02-12-2010
Assessment Year 2003-2004
Appeal Filed On 16-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE ACCOUNTANT MEMBER] I.T.A.NOS.1538 TO 1540/MDS/2010 ASSESSMENT YEARS : 2001-02 2002-03 AND 2003-04 THE ACIT COMPANY CIRCLE I(3) CHENNAI VS M/S CHOLAMANDALAM INVESTMENTS & FINANCE COMPANY LTD DARE HOUSE NO.2 NSC BOSE ROAD CHENNAI [PAN - AAACC1226H ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.B. SEKARAN RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THESE ARE THREE APPEALS FILED BY THE R EVENUE AGAINST THE SAME ASSESSEE PERTAINING TO ASSESSMENT YEARS 2001-0 2 2002-03 AND 2003-04. THE ORDERS APPEALED AGAINST WERE PASSED S EPARATELY BUT ON THE SAME DATE I.E 30.6.2010. IN ALL THESE APPEALS IDENTICAL ISSUE ARISING OUT OF COMMON SET OF FACTS IS INVOLVED THE REFORE FOR THE SAKE OF CONVENIENCE AND BREVITY WE ARE DECIDING THEM BY A COMMON ORDER. 2. BRIEFLY STATED THE COMMON SET OF FACTS OF THESE CASES ARE THAT THE ASSESSEE-COMPANY A PUBLIC LIMITED COMPANY IS ENGAGED IN THE ITA 1538 TO 1540/2010 :- 2 -: BUSINESS OF LEASING AND FINANCE. THE MODUS EMPLOY ED FOR THE LEASE BUSINESS IS THAT AFTER PURCHASING ASSETS THE ASSES SEE-COMPANY WOULD LEASE THEM TO ITS CUSTOMERS BY EXECUTING A LEASE AGREEMENT. THE LEASE-RENTALS RECEIVED THEREFROM ARE OFFERED AS ITS INCOME OF THAT YEAR. THE ASSESSEE ALSO SIMULTANEOUSLY CLAIMS DEPRECIATIO N ON THESE ASSETS. IN THESE YEARS THE ASSESSING OFFICER HAS DISALLOW ED DEPRECIATION IN RESPECT OF CERTAIN ASSETS ON THE REASONING THAT T HESE WERE NOT PUT TO USE IN THE LEASING BUSINESS AFTER THE EXPIRY OF T HE LEASE AGREEMENTS. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO HAS AGREED WITH THE ASSESSEE BY CONTENDING THAT ON CE THE ASSET ENTERS INTO THE BLOCK OF ASSETS IT IS ONLY THE YEA R OF ENTRY INTO THE BLOCK OF ASSETS WHICH IS RELEVANT FOR THE TEST OF U SER AND THEREAFTER IT IS NEITHER POSSIBLE NOR NECESSARY TO CONSIDER WHETH ER EACH ASSET IN THE BLOCK HAS BEEN USED DURING THE YEAR OR NOT. ACCORD ING THE ASSESSEE- COMPANY THE ENTIRE BLOCK WOULD BE ENTITLED FOR DEP RECIATION EVEN IF SOME OF THE ASSETS IN THE BLOCK HAVE NOT BEEN USED DURING THE YEAR. THE REVENUE OBJECTS TO THIS FINDING OF THE LD. CIT (A). THE CASE OF THE REVENUE IS THAT ONCE THE LEASE PERIOD IS OVER THE LEASED ASSET WILL REVERT BACK TO THE LESSOR AND SHALL REMAIN AS AN A SSET AND NOT AS LEASED ASSET IN ITS HANDS IN ALL THE YEARS SIMIL AR ISSUE IS INVOLVED EXCEPT FOR THE AMOUNT OF DEPRECIATION INVOLVED THER EIN. ITA 1538 TO 1540/2010 :- 3 -: 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. I T WAS ARGUED BY THE LD.DR THAT THE DECISION OF THE LD. CIT(A) IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 38(2) OF THE ACT BECAUSE THE USER OF THE MACHINERY/ASSET IS A MUST FOR CLAIMING DEPRECIATION AND THAT THIS PROVISION HAS NOT BECOME REDUNDANT AFTER THE BLOCK OF ASSETS CONCEPT WAS INTRODUCED WITH EFFECT FROM 1.4.1988 IN THE STATUTE BOOK. PER CONTRA THE LD.AR SHRI VIKRAM VIJAYARAGHAVAN APPEARING FOR THE ASSESSEE HAS RELIED ON THE APPELLATE FINDING AND T HE DECISIONS ON WHICH THE LD. CIT(A) HAS RELIED TO ARRIVE ITS CONC LUSION. IT WAS ARGUED THAT FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION UNDER SECTION 32 OF THE ACT THE THEORY OF INDIVIDUAL ASSET WHICH PR EVAILED BEFORE 01.04.1988 CANNOT BE CONSIDERED AFTER THE NEW PROVI SION OF BLOCK OF ASSETS CONCEPT CAME INTO FORCE AND THEREBY EVEN IN THE CASE OF DISCARDED ASSETS THE OWNER CAN CONTINUE TO CLAIM D EPRECIATION THOUGH SUCH ASSET WAS NOT PHYSICALLY AVAILABLE. IN THIS R EGARD RELIANCE WAS PLACED ON THE DECISION OF THE AHMEDABAD BENCH OF IT AT IN THE CASE OF NATCO EXPORTS VS DY. CIT 86 ITD 445 AND ALSO THE C BDT CIRCULAR NO.469 DATED 23.09.1986 IN THIS CONNECTION. RELIAN CE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF HINDUSTAN GAS AND INDUSTRIES LTD VS CIT (1995) 79 TAXMAN ITA 1538 TO 1540/2010 :- 4 -: 151(154) WHEREIN IT HAS BEEN HELD THAT THE LESSOR W OULD BE ELIGIBLE FOR DEPRECIATION IN THE CASE OF LEASED ASSETS EVEN AFTE R THE COMPLETION OF THE LEASE PERIOD. IT WAS SUBMITTED THAT THE FACT THAT THE LESSOR (THE ASSESSEE-COMPANY) WAS NOT ABLE TO GET BACK THE LEAS ED ASSETS OR TO RENEW THE LEASE AGREEMENT DUE TO LOCK OUT IN THE LE SSEES (CUSTOMERS) FACTORY WILL NOT ALTER THE CLAIM OF DEPRECIATION. THERE IS NO DOUBT ABOUT THE FACT THAT THE ASSESSEE IS DOING THE BUSIN ESS OF LEASING AND FINANCE. IT IS TRUE THAT TO CLAIM DEPRECIATION U/S 32 OF THE ACT TWO CONDITIONS HAVE TO BE SATISFIED VIZ. THAT THE ASSE SSEE SHOULD BE THE OWNER OF THE ASSET AND THE ASSET SHOULD BE PUT TO USE IN THE BUSINESS. IN THIS CASE THE ASSESSEE BEING A LEASI NG COMPANY AND HAVING ENTERED INTO A VALID LEASE AGREEMENT WITH SI X PARTIES GOES TO ESTABLISH THE OWNERSHIP OF ASSETS. THE REVENUE HAS ALSO NOT DISPUTED THE OWNERSHIP OF THE LEASED ASSETS. IN FACT WHAT HAPPENED IN THESE CASES IS THAT THE LEASE GOT EXPIRED AS PER THE LE ASE AGREEMENT WHICH COULD NOT BE RENEWED DUE TO CERTAIN REASONS. IN TH E LEASE AGREEMENTS IT WAS CONSPICUOUSLY MENTIONED THAT EITHER A PREMAT URE TERMINATION OR AFTER NORMAL RUN OF LEASE PERIOD THE LESSOR HAS TH E RIGHT TO TAKE POSSESSION OF THE LEASED ASSETS. IN THESE CASES TH E CONTROVERSY HINGES AROUND THE FACTUM OF USER OF THE LEASED ASSETS AFTE R THE EXPIRY OF LEASE PERIOD DURING THE RELEVANT PERIOD WHICH ACCORDING TO THE ASSESSING ITA 1538 TO 1540/2010 :- 5 -: OFFICER IS ABSENT BUT ACCORDING THE ASSESSEE CONS TRUCTIVE USER IS PROVED. IT IS NOTICED THAT IN ALL THESE LEASE AGRE EMENTS UNDER THE TITLE TERMIANTION IT IS MENTIONED THAT WHEN THE LEASE IS TERMINATED EITHER BY THE EFFLUX OF TIME OR THE LEASE IS TERMINATED T HROUGH THE MUTUAL AGREEMENT OR THE LESSOR DECIDES TO TERMINATE THE LE ASE THE LESSEE SHALL DELIVER THE EQUIPMENT BACK TO THE LESSOR. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE/LESSOR COULD NOT GET BACK TH E POSSESSION OF LEASED ASSETS ON THE EXPIRY OF THE LEASE AGREEMENTS ON ACCOUNT OF VARIOUS REASONS WHICH WERE WELL BEYOND ITS CONTROL. IT IS ALSO A FACT THAT NEITHER THESE ASSETS HAVE BEEN SOLD OR DISCARD ED; NOR DEMOLISHED OR DESTROYED DURING THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATION. IT IS ALSO A FACT THAT THE BLOCK OF ASSETS HAS NOT BEEN REDUCED BY ANY VALUE. THE CONCEPT OF BLO CK OF ASSETS WAS BROUGHT ON THE STATUTE BOOK WITH EFFECT FROM 1.4.19 88 AND THE COMPUTATION OF DEPRECIATION IS DONE ON THE WDV OF T HE BLOCK OF ASSETS AND NOT OF ANY INDIVIDUAL ASSET. THE WORD USER F OR DEPRECIATION PURPOSES HAS GOT WIDE CONNOTATIONS. THE ONLY CHANG ES WHICH ARE PERMITTED IN THE COMPUTATION OF WDV OF THE BLOCK IS BY WAY OF ADDITIONS TO THE BLOCK AS REDUCED BY THE AMOUNT REI MBURSABLE ON SALE DEMOLISHED OR DISCARDED BY THE ASSETS OF THE BLOCK THE EXISTENCE OF INDIVIDUAL ASSETS IN THE BLOCK OF ASSETS AMOUNTS TO USER FOR THE ITA 1538 TO 1540/2010 :- 6 -: PURPOSE OF BUSINESS. AS PER THE PROVISIONS OF SECT ION 32 WHEN AN ASSET IS ACQUIRED BY THE ASSESSEE DURING THE PREVIO US YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FO R A PERIOD OF LESS THAN 180 DAYS IN THAT YEAR THE DEDUCTION UNDER THI S SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSE T UNDER CLAUSE (I) OR (II) OR (IIA) AS THE CASE MAY BE. ONCE AN ASSET P URCHASED SATISFIES THE ABOVE CONDITIONS IN THE YEAR OF PURCHASE THAT ASSE T SHALL BE INCLUDED IN THE RESPECTIVE BLOCK OF ASSETS. THE DEPRECIATIO N IS AVAILABLE ON THE WDV IN ACCORDANCE WITH SECTION 43(6) OF THE ACT BY INCREASING OPENING WDV BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK ACQUIRED DURING THE PREVIOUS YEAR. ONCE AN ASSET IS INCLUDED IN THE BLOCK OF ASSETS IT REMAINS IN THE BLOCK OF ASSETS FOR ITS ENTIRE LIFE. AN ASSET CAN GO OUT OF THE BLOCK ONLY IN ACCORDANCE WI TH LAW. THE NAGPUR BENCH OF THE INCOME-TAX ACT 1961 IN THE CASE OF EA STERN COAL FIELDS LTD VS JCIT (2003) 260 ITR (AT) 1(NAGPUR) HAS HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON ENTIRE BLOCK E VEN IF A SINGLE ASSET OUT OF THE ENTIRE BLOCK IS NOT PUT TO USE BY THE AS SESSEE FOR BUSINESS CONSIDERATIONS. AFTER 1.4.1988 THE INDIVIDUAL ASS ET HAS LOST ITS IDENTITY AND FOR THE PURPOSE OF ALLOWING OF DEPRECIATION ON LY THE BLOCK OF ASSETS HAS TO BE CONSIDERED. IF A BLOCK OF ASSETS IS OWNED BY THE ITA 1538 TO 1540/2010 :- 7 -: ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS DEPR ECIATION HAS TO BE ALLOWED. EVEN A CLOSED UNIT IS ELIGIBLE FOR DEPREC IATION AS HELD BY THE MUMBAI ITAT IN THE CASE OF SWATI SYNTHETICS VS ITO . IN THE CASE OF HINDUSTAN GAS & INDUSTRIAL LTD VS CIT 79 TAXMAN 15 1(CAL) WHERE THE LEASE AGREEMENT HAD EXPIRED AND THE AGREEMENTS COUL D NOT BE RENEWED DUE TO LOCK OUT IN LESSEES FACTORY AND T HE ASSESSEE COULD NOT GET BACK THE POSSESSION OF THE ASSETS OF GENERA TING SET THE HON'BLE COURT HELD THAT THE ASSESSEE IS ENTITLED TO GET DEPRECIATION EVEN THOUGH THE ASSET WAS NOT IN ACTUAL USE DUE TO LOCK OUT IN THE LESSEES FACTORY. 4. ONCE AN ASSET ENTERS A BLOCK THERE IS NO INDIVIDU AL IDENTITY FOR THE ASSET AS IT GETS MERGED INTO THE BLOCK. SIMILA R VIEW HAS BEEN TAKEN IN THE FOLLOWING CASES: DY. CIT VS UDAIPUR DISTILLERY CO. LTD 119 TAXMAN 206 (JODH.) PACKWEL PRINTERS VS ACIT 59 ITD 340 (JBP) NATCO EXPORTS VS DY. CIT 87 ITD 495 (HYD.) UNITED PRODUCTS LTD VS ITO I.T.A.NO. 153 & 154 OF 2 0039MUM.) ACIT VS SRF LTD 21 SOT 122(DEL) NATHANI STEELS LTD VS DY. CIT 56 TTJ 240 (BOM.) 5. IN VIEW OF THE FOREGOING WE ARE OF THE CONSIDERED OPINION THAT BOTH OWNERSHIP AND USER ARE REQUIRED FOR THE PURPOS E OF DEPRECIATION AFTER THE ADOPTION OF THE CONCEPT OF BLOCK DEPRECIA TION THE USER TEST WILL BE RELEVANT ONLY IN THE YEAR OF ENTRY INTO THE BLOCK OF ASSETS ITA 1538 TO 1540/2010 :- 8 -: BECAUSE ONCE IT ENTERS THE BLOCK IT IS NEITHER POS SIBLE NOR NECESSARY TO CONSIDER WHETHER EACH ASSET IN THE BLOCK HAS BEEN U SED DURING THE YEAR OR NOT. THE ENTIRE BLOCK WOULD BE ENTITLED T O DEPRECIATION EVEN IF SOME OF THE ASSETS ARE NOT USED DURING THE YEAR. M OREOVER THE LEASED ASSETS COULD NOT BE TAKEN BACK DUE TO REASONS BEYON D LESSORS CONTROL EVEN AFTER THE EXPIRY OF LEASED PERIOD AND CONTINUE D TO BE IN THE POSSESSION OF LESSEES. THE DECISIONS RELIED ON BY THE LD.AR DEFINITELY HELP THE CLAIM OF THE ASSESSEE. HENCE BY FOLLOWIN G THE DECISIONS MENTIONED (SUPRA) AND THE CBDT CIRCULAR AND THE OTH ER VALID REASONS GIVEN ABOVE WE CANNOT FIND FAULT IN THE APPELLATE FINDINGS. THEREFORE IN OUR CONSIDERED OPINION THERE IS NO FALLACY IN T HE FINDING OF THE LD. CIT(A) AND HENCE WE CANNOT ALLOW THE REVENUES APP EAL FOR ASSESSMENT YEAR 2001-02. 6. IN OTHER TWO YEARS I.E ASSESSMENT YEARS 2002-03 AN D 2003-04 THE FACTS ARE EXACTLY IDENTICAL EXCEPT FOR THE FIGU RES OF DEPRECIATION; AND AS SUCH WITH SIMILAR REASONING WE DISMISS THE SE APPEALS AS WELL. 7. IN THE RESULT ALL THE THREE APPEALS OF THE REVENUE STAND DISMISSED. ITA 1538 TO 1540/2010 :- 9 -: THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.01 .11. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 7 TH JANUARY 2011 RD COPY TO: APPELLANT /RESPONDENT/CIT(A)/CIT/DR